TDS On Interest U/s 194A: Rates, Exemptions & Computation

Section 194A of Income Tax Act deals with TDS on Interest, other than interest on securities.

It provides for deduction of tax from interest at the rate of 10%, where the interest amount exceeds Rs 5,000 during any financial year.

In case such interest is paid by the following entities, tax shall not be deducted at source unless the payment exceeds Rs 10,000.

A banking company

A cooperative society engaged in banking business

Post office on any deposit under any scheme framed and notified by central gov.

So if you earn interest on Fixed deposit for more than Rs. 10,000, then the bank will deduct TDS @10% on whole Interest amount.

For Example you earn Interest of Rs. 25000 from your fixed deposit with bank, the TDS deducted will be Rs. 2,500.

It is very important to note that Individual/HUF is liable to deduct tax TDS ON INTEREST 194A only if their sales, grass receipt turnover exceeds the limits prescribed u/s 44AB in the immediately preceding financial year.

Exemptions from TDS on Interest

Exemptions has been granted from the deduction of tax at source ( TDS ON INTEREST 194A ) in respect of the following:

Interest credited or pay by a firm to a partner of the firm

Interest credited or paid by a cooperative society to its member or to any other co-operative society

Interest on the compensation amount awarded by the motor accident claims tribunal where the aggregate of such interest income in financial year does not exceeds Rs 50,000;

Income paid or payable at income coupon bonds issued by an infrastructure capital company or infrastructure capital fund or a public sector company or a scheduled bank;

Interest paid to banking company or any cooperative society engaged in banking business

Interest paid to financial corporation established under a central , state or provincial act;

Interest paid to LIC,UTI, any company or cooperative society carrying on insurance business;

Interest on deposits with a banking company other than time deposit;

Income credited or paid in respect of deposits under any scheme framed by central government;

Income paid or credited in respect of deposits with :-

A primary agricultural credit society or a primary credit society or a cooperative land mortgage bank or a co-operative land development bank

Deposits other than time deposits, with a cooperative society carrying on banking business, other than a co-operative society, referred above.

Interest credited or paid by central government under income tax act, 1961 and wealth tax act, 1957,viz, interest on refunds.

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